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HUL Distribution Model

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HUL Distribution Model

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HUL Distribution ModelOverviewHUL’s (previously known as HLL) products are distributed through a network of 4,000 redistributionstockists, covering 6.3 million retail outlets reaching the entire urban population, and about 250 millionrural consumers.There are 35 C&FAs in the country who feed these redistribution stockists regularly. The general tradecomprises grocery stores, chemists, wholesale, kiosks and general stores.HUL provides tailor made services to each of its channel partners. It has developed customermanagement and supply chain capabilities for partnering emerging self - service stores andsupermarkets.Around 2,000 suppliers and associates serve HUL’s 40 manufacturing plants which are decentralizedacross2 million square miles of territory.Phase-Wise Evolution of HUL Distribution Model Phase 1B: Indirect Phase 1A: Van coverage model; Phase 2: Phase 3: Project based direct (fixed distributor based in Operation Shakti for smaller route) coverage for large village to supply Streamline villages (<2000 large villages (pop. to smaller nearby (Star Sellers) pop.) 50,000) villages

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Rural Distribution ModelPhase 1A: Direct CoverageHUL appointed a common stockist to service all outlets within a town and sell a limited selection of thebrand portfolio. Towns consisted of populations of under 50,000 people.Phase 1B: Indirect CoverageHUL targeted retailers in accessible villages close to larger urban markets. Retail stockists were assigneda permanent route to ensure that all accessible villages in the vicinity were served at least once afortnight.

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Phase 2: Operation StreamlineGoods are distributed from C&F agents to rural distributors, each one having 15-20 sub-stockists (StarSellers). Operation Streamline leveraged the rural wholesale channel to reach markets inaccessible byroad. Star Sellers were appointed among wholesalers in a particular village. Star Sellers would purchasestock from a local distributor and then distribute stock to retailers in smaller villages using local meansof transport (e.g. motorcycles, rickshaws).Phase 3: Project ShaktiProject Shakti targeted the very small villages (<2,000) and tapped into pre-existing women’s Self HelpGroups (SHGs). Underprivileged rural women were invited to become direct-to-consumer salesdistributors for HUL products. Termed Shakti Ammas, these women represent HUL and sell its home-care, health, and hygiene products in their villages on a “cash and carry” basis. Each Shakti entrepreneurusually covers 6-10 villages in the population strata 1000-2000. Initiatives under Project Shakti: ShaktiEntrepreneur, Shakti Vani Program and iShakti Portal. Redistribution Shakti Shakti C & F Agents Stockist Distributor EntrepreneurDuring 2010-11, HUL significantly increased its direct retail coverage by adding over 600,000 outlets. Inrural, HUL tripled its direct coverage in rural India from 2.5 lakh stores to 7.5 lakh stores by adding 5 lakhrural retail stores in its direct coverage. In 2010, Project Shaktimaan, second phase of Project Shakti waslaunched. Over 23000 Shaktimaans are operating in villages across India. Project Shakti has beenexpanded to 5,00,000 outlets.

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How HUL expanded its distribution networkPreviously  Network of 2,700 redistribution stockists and sub-stockists to supply products to stores in large villages.  For smaller villages with a population of less than 5,000, its products were sold through wholesalers. Shopkeepers from these villages would travel to these wholesalers and to pick up their supplies as and when it suited them. At best, the distribution in these villages was patchy and the company had no strategy on whom to cover and whom to leave out.Late 1990s - Project Streamline  Created a hub and spoke system and appointed sub-dealers who had the opportunity to serve villages in their vicinity.  HUL had little or no control over the distribution chain.  Smaller regional brands would offer better mark-ups and sell goods on credit and take away a significant portion of business in a short span.  Shopkeeper who stocked HUL products felt no loyalty to the company and could switch sides overnight.2001  Expanding its reach through Project Shakti, where it used women entrepreneurs in distant villages to stock and sell its brands.2010 onwardsLater, while formulating a formal new plan for HUL’s distribution in rural areas, the company realisedthat the buying habits of rural consumers were changing. Many of these consumers actually aspired tobuy the same products they saw the city people using. Based on this insight, the company set aboutgetting its redistribution stockists to start offering as many as 250 SKUs to stores in villages with apopulation of over 5,000. Handling the complexity at the distributor’s end, due to increased scale was achallenge.The company now uses ‘geo-tagging’ to understand how far villages are from the nearest highway andhow long it would take the nearest distributor to reach them.Also, expectations from rural distributors are different. Rural areas are still in the growth mode anddistributors are expected to actively push shopkeepers to stock HUL soaps, shampoos and detergents.Pushing products and grabbing store space is still very much the name of the game. Promotion throughmerchandising and display will play a key role.Add to that the higher cost of raising capital for smaller outfits and the company still offers them healthymarkups of 5 percent. Most distributors make about 2-2.5 percent on the goods sold.

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Rural distributors usually have two weeks’ worth of stock with shopkeepers and one week’s worth ofinventory, which allows them to turn them over 17 times a year leading to a return of at least 34percent. This takes care of their cost of capital as well as allowing them to invest in technology.Distributors on their part are expected to replenish supplies in stores as and when the shopkeeper asksthem to do so. Stock levels for urban distributors are kept at one or two days only.In addition to improved maps, HUL is also making use of wireless technology to get real timeinformation on demand patterns and trends. Distributor sales teams have been given handheld devices.In other places, mobile phone applications are used to key in this data, which is then automaticallyuploaded.HUL can now get almost real-time information on consumer behaviour and demand patterns, instead ofhaving to rely on its distributors for such data. One way to use this would be to craft marketingcampaigns for products that are popular in certain regions and districts of the country.Direct DistributionCrucial advantage:  With the company — and not the wholesaler — controlling what the shopkeeper buys, it is possible to manage the product mix and push more higher-margin products into the market. The added profitability can then be used to get distributors to push deeper into distributing products and also invest in technology.Lastly, the company hopes to improve its product mix and increase sales of higher margin soaps anddetergents. With smaller pack sizes, the company has seen that consumers who can afford moreexpensive brands tend to shift over.Availability of CreditShopkeepers offered low-priced brands (other than HUL), if they knew they had to sell on credit to, say,a low income farmer. It is crucial for a company to offer credit to shopkeepers. And this can be doneonly by direct distribution. Sales through the wholesale channel are seldom done on the basis of credit.  Moved from selling to servicing their customers, the shopkeepers.  HUL often partners with its distributors to help them raise capital and maintain their business.Other InitiativesLast Mile ChallengeIn villages with a population of below 2,000, use of the men folk called Shaktimaan, who is givenproducts to sell as well as a sturdy bicycle to take to villages within a 5-kilometre radius.

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Perfect StoresAimed at improving availability by maintaining and building assortment in outlets and ensuring bettervisibility of HUL products at the point of purchase.Project ExpressPartnering with businesses like mobile telecommunications, which have a similar wide reach. We havepartnered with Tata Teleservices Limited to increase our rural foot print and give a fillip to ruraldistribution as well as the earnings potential of Shakti entrepreneurs. Working to extend thispartnership to 15 states. Project iQ, which uses sophisticated analytics reaches out to these stores.Mother Depot and Just in Time System (MD-JIT)Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimumnumber of JIT depots attached for stock requirements. All brands and packs required for the set ofmarkets which the MD and JITs service in a given area are sent to the mother depot by all manufacturingunits. The JITs draw their requirements from the MD on a weekly or bi-weekly basis and supply tostockists in that area, who, in turn, supply to retailers.References:1. HUL Website (www.hul.co.in)2. HUL Annual Reports3. HUL Investor Presentations4. Harvard Business Review Case: “Unilever in India: Hindustan Levers Project Shakti--Marketing FMCG to the Rural Consumer”5. http://forbesindia.com/printcontent/174626. http://www.mydigitalfc.com/news/perfect-stores-add-zing-hul%E2%80%99s-sales-growth-901